Friday, April 15, 2016

Former Obama Attorney General Eric Holder refused to prosecute the largest banksters because, he said, doing so might ignite another huge crisis in the financial system. Now its clear that Obama's new Attorney General, Loretta Lynch, is continuing Holder's policy: this past week, no less than Goldman Sachs was allowed to a $5 billion plea bargain rather than facing a real court of justice for its role in deceiving investors and causing the 2008 financial crisis.

$5 billion may sound like a lot of money, but as various experts are pointing out, it is really not that much. First of all, the actual amount of cash extracted from Goldman Sachs will probably only be around $3 billion. Second, much of that $3 billion will probably be accounted as an expense as thus deducted from what Goldman Sachs pays in taxes, meaning that part of the agreement is actually being paid by USA taxpayers, not Goldman Sachs. Third, even the full $5 billion is a small amount when compared to Goldman Sachs's $32.9 billion in profits on $102.5 billion in revenues the past three years. David Dayen notes in a posting at The New Republic, that the settlement is for deceit in about 530 mortgage-backed securitizations between 2005 and 2007. Each securitization probably averaged $1 billion in size, and it would be a stretch to assume that Goldman Sachs did not make well over $2 billion on them.

Finally, as Allie Conti notes in a posting at Vice, the Government Accountability Office
(GAO) has estimated that the fraud committed by Goldman Sachs and
other banks cost American homeowners $9.1 trillion on paper,
while the resulting Great Recession cost the economy $22 trillion. so, Goldman Sachs caused trillions of dollars in damages, but is going to cough up mere billions - less than one percent - for its misdeeds.

On Monday, Wall Street behemoth Goldman Sachs agreed to shell out
more than $5 billion for deceiving investors and contributing to the
2008 financial crisis. The settlement, which was brokered by several
state attorneys general as well as the feds, is supposed to provide $1.8
billion in relief to distressed homeowners, along with a hefty civil
penalty. In a statement, US Attorney Benjamin B. Wagner of the Eastern
District of California said
it shows that the United States "remain[s] committed to pursuing those
responsible for the financial crisis," while Acting Associate US
Attorney General Stuart F. Delery said it "makes clear that no
institution may inflict this type of harm on investors and the American
public without serious consequences."

But while $5 billion seems like a sizable punishment, it's really just a drop in the bucket for a global player like Goldman.

Dennis M. Kelleher, CEO of the non-profit financial reform
advocacy group Better Markets, tells me that in the last four years,
Goldman's revenue has been more than $135 billion. In other words, the
penalty will affect them about as much as a Nerf dart gun might upset an
NFL linebacker.

Monday's announcement is particularly glaring because after other majors like JP Morgan and Bank of America struck deals
of their own, Goldman was the last of the big banks facing scrutiny
over the meltdown. That means it's safe to say some the more notorious
swindlers in American history have officially gotten off scot-free.

The statement of facts in the settlement tells a story familiar to anyone who followed the financial crisis or saw The Big Short.
Like the other big banks, Goldman Sachs peddled residential
Mortgage-Backed Securities (MBS), which is another way of saying they
put bunches of crappy loans into bundles. They then sold those bundles
to investors while vouching for their quality, when in reality they
hadn't bothered to look into borrower's ability––or even desire––to
repay them. As laid out in the settlement, between December 2005 and
2007, Goldman's practice was to spot check various loans to see if they
met underwriter's guidelines. In many cases, 80 percent of the loans
went unchecked. In fact, in numerous loan pools, more than 20 percent of
the loans were graded as "EV3," which is shorthand for saying they
carried an unacceptable level of risk and were basically doomed to fail.

Even when shit started to hit the fan in 2006, Goldman did not
take its foot off the pedal. Fremont Bank was a top-priority client and
originator of many of these bad loans, and in the middle of that year,
Goldman found out that the smaller bank's rate of early payment defaults
was increasing in a way that should have set off an alarm. But
at no point did Goldman put Fremont on their no-bid list, even while
the client had unpaid claims from the defaults they had yet to even
settle. Around the same time, an outside analyst gave a positive report
on the stock performance of Countrywide, another Goldman client that
specialized in subprime mortgages. "If they only knew," wrote the head of due diligence at Goldman Sachs, referencing the report.

Well all know what happened as a result of this cavalier
indifference. People lost their homes and the country spiraled into an
economic recession unlike any since the Great Depression––one that left
people feeling so hopeless that thousands in North America and Europe committed suicide.
And while the too-big-to-fail banks continue to operate largely as they
did, the rest of the country is still cleaning up the mess. According
to the Government Accountability Office
(GAO), the gross negligence and misrepresentation Goldman Sachs (and
other banks) engaged in cost American homeowners $9.1 trillion on paper,
and the broader recession cost the economy $22 trillion.

Brad
Miller, a former North Carolina Congressman who worked extensively on
financial regulation in Washington and now litigates against big banks,
says that the fees do very little to actually help the people banks
hurt. That $1.8 billion in relief from Goldman that's supposed to help
homeowners in distress? Miller says that in these cases, the terms are
kept vague, and Goldman can use that money to do things that are in its
best interest anyway, like writing off debt that's obviously not going
to be repaid, demolish foreclosed upon houses, and modify mortgages that
are in distress.

"It would be like me agreeing to be right handed all day today or
to wake up tomorrow morning and have coffee," Miller says of the
settlement agreements. "Those things are going to happen anyway."

He also pointed to something critics have called
the "bullshit-to-cash ratio" as one indicator of how little the penalty
will affect a giant like Goldman. Basically, it's important to note
that only about $3 billion of the $5 billion will be paid out in cash.
On the other hand, about half is tax-deductible and will be placed on
the backs of taxpayers––even though the median American family lost about 40 percent of their wealth during the worst stretch of the crisis.

What's more, the New York Times notes that after incentives and tax credits, Goldman can chop about a billion dollars off the total penalty. According to a chart attached to the settlement, for every dollar Goldman puts into community investment in New York, they get a $2 tax credit.

Oh,
and there's also the glaring fact that not a single person will see
prison time, including Lloyd Blankfein, the Goldman Sachs CEO and
president through the financial crisis, who hauled in
$157.3 million between 2006 and 2008. "The banks are released from all
liability for their illegal conduct, but DOJ always says that no
criminal charges or charges against individuals are released," notes
Kelleher. "However, no prosecutor has then gone after individuals
criminally. So they say it, but it's meaningless."

In other words,
this is a darkly comical disaster. When former Attorney General Eric
Holder dished out similar slaps on the wrist, at least there was some
context: his tenure as our country's top crime-fighter was bookended
by stints with a white-collar law firm whose client list includes many
of the big banks he had the opportunity to truly punish. Goldman is the
first big bank to ink an agreement with his successor, Loretta Lynch,
helming the ship. And because it's the last of the majors, it's clear
America is stuck with the status quo of basically doing nothing and then
writing self-congratulatory press statements about how justice was
served.

"There's very little in the settlement that will deter bad
conduct in the future," Miller, the former Congressman, tells me.
"Investors appear to get nothing out of this. The employees involved not
only didn't have to worry about how they would look in orange
jumpsuits, but they get to keep the bonuses they got paid a decade ago.
There has been very little justice."